6 Keys to True Financial Independence

Most people would love to be in a position in which they have no money worries, plenty of assets and complete financial independence. But the reality is that very few people ever seem to be at peace with their financial lives.

In my experience as a financial adviser for more than 25 years, as well as a host of a financial radio program for two decades, I've worked with thousands of individuals and couples—people from all different ethnic and social backgrounds and with disparate levels of income, from multi-millionaires to people in the midst of bankruptcy. And what I've discovered is that there is little correlation between net worth and financial independence. I've seen extremely wealthy folks live in constant stress and fear about their money, and I've known people of relatively moderate means who were completely at peace with their financial situations.

For people to achieve true financial independence—that is, for someone to be financially independent as well as in an emotional position to be truly free from outside influences and excess worry—there are really six keys. Here they are:

1. Be debt free.

There is nothing inherently wrong with debt. In fact, it can make tremendous sense to borrow money for certain purchases, such as taking out a mortgage to buy a house. And there may be times when it is wise to borrow in order to make an investment, such as buying an apartment building.

It's not debt that is the problem. The problem lies in the fact that a loan must be paid each and every month, regardless of what happens. Home prices falling? Too bad; keep paying the mortgage. Out of work while the stock market is crashing? Oh well; keep paying the loan.

Fortunately, we no longer live in a time where you can be thrown into debtor's prison, but as Proverbs 22:7 states, "The borrower is slave to the lender." While having a home that is mortgage-free may sound like an antiquated idea, it is still one of the keys to your financial peace of mind.

2. Have few financial obligations.

A large and complicated lifestyle doesn't guarantee happiness. In fact, I've noticed that people who can afford multiple homes, private jets and lavish vacations often don't feel financially independent. On the contrary, their happiness depends on what next great experience they can purchase for themselves, and they worry about what might happen if the day comes when they can no longer afford a first-class lifestyle.

Oftentimes, people with simple lifestyles feel the most freedom. The fear of another global financial crisis doesn't concern them because they don't need to generate hundreds of thousands, or even tens of thousands, of dollars each month in order to pay their bills.

3. Have a highly diversified portfolio.

Okay, every financial advisor recommends a diversified portfolio. Why? Well, it's certainly not to create wealth. Wealth is often created when someone has a concentrated position in just one or two things, such as a great company or an ideally-located piece of real estate.

Diversification is designed to protect your wealth and, in turn, your lifestyle. The more your wealth is concentrated in just a few investments, the more your financial future is dependent on how those investments perform.

If financial independence is your top goal, it's imperative that your life savings be diversified across many different investments.

4. Spend less than you can afford.

Most of us have heard that, while we are working, we should spend less than we earn so that we can save the difference. The same holds true when we are no longer working: We should spend less than we can afford.

People who are financially independent are not reliant upon great stock market returns or high real estate appreciation. Rather, they determine a spending plan that requires less money than their savings and investments are predicted to return. In other words, they assume very low growth rates on their investments and adjust their lifestyles accordingly.

5. Be emotionally prepared to live on much less.

Real financial independence is being in a position where one's finances, or lack thereof, doesn't impact peace or happiness. It's this emotional component that seems to be one of the largest drivers of financial independence.

People who hold onto their material possessions loosely and don't worry about losing them are the ones who seem least concerned about the financial news of the moment. Because their financial houses are in order, they know they've done everything they can to secure their financial independence, and they simply don't waste any energy worrying about the things they cannot control.

6. Give.

When we give—whether it's giving of our time, talent or our treasure—it takes the focus off of ourselves and puts it on others. Some of the most relaxed people I know are also the most generous.

Financial independence won't happen without some planning and discipline, but you certainly don't need to be "rich" (whatever that might mean to you) in order to achieve security and peace. Focus on these six keys, and you'll find yourself among the small percentage of people who are truly financially independent.